Planning for College
Financing Your College Education
When considering your/your child's future educational plans, many parents and potential students struggle with how to plan to finance their education. We know how challenging that can be! Here, you can find information and resources to keep in mind as you navigate the years ahead until high school graduation.
How to Start Planning
Perhaps the most important thing to remember when planning to pay for college is the earlier you start the better! In fact, the early years are the most important as interest accrues for a longer period of time--depending on the method you choose.
Birth Through Elementary School
While the child is still very young is the best time to be looking into saving options for their future goals. As with all financial decisions, it is important to do some additional research as to what works best for you--some additional resources can be found below.
529 Plan
- Pros:
- Tax-deferred
- High annual contribution limits
- No income requirements
- Low maintenance
- Cons:
- Must be used for qualified education-related expenses
- Can include fees
- Can be included as an asset on the FAFSA
Roth IRAs
- Pros:
- Earnings grow tax free
- Money that is not used for school can be used for retirement
- Cons:
- Tend to have lower annual contribution limits than a 529
- No state income tax deductions are available
- Withdrawals can be considered as income for financial aid purposes
Coverdell ESAs
- Pros:
- Tax-deferred as long as funds are used for education-related expenses
- Cons:
- Annual contribution limits can be income-dependent
- Eligibility criteria includes income requirements
Middle School
Once the student is in middle/junior high school, the student or parent can still start saving using any of the above options, but keep in mind that contributions will be made over a shorter period of time and may therefore result in a lower total amount saved when it comes time to withdrawal the needed funds. Below are some ways to kick start savings for their future:
- Find out if your employer offers automatic deductions for a 529 plan. If not, you can setup automatic transfers to your savings account after each paycheck so you can set it and forget it.
- Contributions from family members who have expressed interest in assisting with college expenses
During this time of saving for the student's future, you can also begin learning some of the terms and conditions surrounding financial aid.
Early High School
In the first couple years of high school, the student should have more of a foundation for a potential career they would like to pursue or even what their dream school is. This direction opens the door for more realistic research about the affordability of that dream school as well as some other schools the student might be interested in (i.e. schools with similar programs, schools in the same area geographically, schools that a family member or friend has recommended, etc.). As you are looking further into these schools, continue to learn more about types of financial aid and their relevant eligibility requirements as this will help you evaluate the financial benefit of one school over another.
All of the options listed above are still available, but the amount put away strictly during the student's high school years will be less still as there is now less time to save.
- Continue learning about financial aid types and requirements
- Consider part-time employment
Late High School
During the student's junior and senior years of high school, there may not be a lot of time available to save, but this is the best time to really begin crunching the numbers and looking at ways to keep college costs down. Below are some tips that could be helpful during this time-frame:
- See if there is a dual-enrollment program available near the student's high school where they can take college courses while also enrolled in their high school courses
- Use the FAFSA4caster feature to estimate what federal financial aid the student could be eligible for
- Continue learning about financial aid types and requirements
- Consider part-time employment
- Apply, apply, apply for scholarships!
If there are still concerns about financing the student's education, remember that there are other options to discuss.
- Taking general coursework or prerequisites at a community college and transferring
- Expected Family Contribution (EFC) Appeals may be an option available at the school to accommodate for financial circumstances not reflected in the FAFSA's EFC calculation.